The rapid global development of Central Bank Digital Currencies (CBDCs) has sparked intense discussion regarding the internationalization of digital currencies, the progress of digital yuan pilot programs, and the critical distinctions between digital currencies and digital assets. These topics are increasingly becoming focal points for financial markets and regulatory bodies worldwide.
At a key sub-forum during the Boao Forum for Asia Annual Conference 2021, experts and central bank leaders gathered to debate and analyze the pivotal theme of "Digital Payments and Digital Currencies," offering diverse perspectives on the future of money.
Lessons from China's Digital Yuan Pilots
Digital currency has emerged as a central theme in the global financial transformation. Zhou Xiaochuan, Vice Chairman of the Boao Forum for Asia and former Governor of the People's Bank of China (PBOC), highlighted that technological advancements, particularly the widespread adoption of internet terminals, coupled with the demands of China's vast retail market, have jointly fostered the development of a more convenient, efficient, and lower-cost payment system. He emphasized that building a robust retail payment system is the essential foundation for all other financial business developments.
Li Bo, Deputy Governor of the PBOC, acknowledged the significant learnings gained from China's domestic digital yuan trials. The effectiveness and security of the two-tier system—where the central bank issues digital currency to commercial banks, which then distribute it to the public—have been validated in practice. This design minimizes financial disintermediation risks by ensuring compatibility with the existing monetary and banking systems.
The PBOC has also achieved what it terms "controllable anonymity" through its multi-layered system. Small-value transactions can be anonymous, while larger transactions remain traceable, a feature Deputy Governor Li described as an ideal approach for a digital currency.
He further characterized the digital yuan system as "quite open," noting ongoing experiments with a hybrid system that couples the digital currency with account-based, quasi-account, and token-based systems. While a specific nationwide rollout timeline has not been set, the PBOC plans to expand the scope of its pilot programs, build a comprehensive digital yuan infrastructure ecosystem, enhance technical security and stability, and establish a corresponding regulatory framework.
The central bank is actively considering more application scenarios and testing in more cities. A significant forthcoming test will be the Beijing Winter Olympics, where the goal is for the digital yuan to be usable not only by domestic users but also by international visitors, thereby testing the currency across a wider range of scenarios.
The Path to Digital Currency Internationalization
A major challenge in the implementation of CBDCs is achieving seamless global interoperability—how to connect various national digital currencies across borders.
The primary direction involves fostering compatibility and interconnectivity between different CBDCs. Agustin Carstens, General Manager of the Bank for International Settlements (BIS), outlined three potential paths for this "internationalization": achieving compatibility between different CBDCs; building interfaces and interlinking systems to create a more closed network; or establishing a unified network of mutually compatible CBDCs to make cross-border payments more efficient.
Achieving this interoperability is no simple task. Deputy Governor Li Bo advised against rushing for a single solution. Instead, he advocated for exploring different methods, testing various technologies, maintaining an open mind, building a robust digital yuan with a healthy ecosystem, and strengthening cooperation with international partners.
Zhou Xiaochuan stressed that any effort must respect the monetary sovereignty of individual nations, stating that it "cannot be a situation where one currency dominates the world."
Global central banks are already taking concrete steps. In February, the Hong Kong Monetary Authority, the Bank of Thailand, the Central Bank of the United Arab Emirates, and the Digital Currency Institute of the PBOC announced a joint project to explore a multiple CBDC bridge (m-CBDC Bridge) for cross-border payments.
Vachira Arromdee, Assistant Governor of the Bank of Thailand, expressed hope that this pilot project would further promote the use of CBDCs in cross-border payments and attract more central banks to participate.
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Digital Assets Must Serve the Real Economy
The rising prominence of digital assets like Bitcoin has also come under scrutiny. A consensus among forum participants was clear: risk prevention must be strengthened, and both digital currencies and digital assets must ultimately serve the real economy.
Zhou Xiaochuan pointed out the critical need to distinguish between digital currencies and digital assets. Regarding assets like Bitcoin, he stated that while it's not yet time to draw final conclusions, it is necessary to "issue reminders and be cautious." He emphasized that in China, "any financial innovation must clearly demonstrate its benefits to the real economy."
Deputy Governor Li Bo provided a clear definition: "Bitcoin is a crypto asset, an investment option. It is not a currency itself but rather an alternative investment." He believes the primary role of crypto assets in the future will likely be as investment vehicles or alternative investment options.
As Bitcoin and other crypto assets garner more market attention, the call for stronger regulatory rules grows louder. Li Bo confirmed that regulators are actively studying supervisory rules for Bitcoin and stablecoins. "In the future, if any stablecoin aspires to become a widely used payment tool, it must be subject to stringent regulation, similar to banks or quasi-bank financial institutions." The paramount goal is to ensure that speculation in such assets does not lead to serious financial risk.
Frequently Asked Questions
What is the main difference between a digital currency and a digital asset?
A digital currency, like a CBDC, is a digital form of a country's fiat currency, issued and regulated by its central bank and intended for use as a medium of exchange. A digital asset, such as Bitcoin, is a cryptographic asset that operates on a decentralized network and is primarily viewed as a store of value or investment instrument rather than official currency.
How does China's digital yuan achieve 'controllable anonymity'?
The digital yuan system is designed to balance privacy with regulatory oversight. It allows for anonymity in small-value, everyday retail transactions to protect user privacy. However, it maintains the ability to track and trace larger-value transactions to prevent illicit activities like money laundering and fraud, ensuring compliance within the financial system.
What are the goals of the multi-CBDC bridge (m-CBDC Bridge) project?
The m-CBDC Bridge project is a joint initiative by several central banks to explore the use of Central Bank Digital Currencies for cross-border payments. Its goal is to develop a prototype platform that can facilitate real-time, cheaper, and more efficient international transactions by enabling interoperability between different countries' digital currencies.
Why is regulatory oversight important for stablecoins?
Stablecoins, which are often pegged to traditional assets like the US dollar, aim to maintain a stable value. Regulatory oversight is crucial because if a stablecoin becomes widely adopted as a payment tool, its issuer must operate with the same resilience and reliability as a bank. This ensures financial stability, protects consumers, and prevents the asset from being used for unlawful purposes.
Will the digital yuan be available for use by international users?
Yes, international usability is a key goal. The upcoming pilot during the Beijing Winter Olympics is explicitly designed to test the digital yuan with international users. This is a significant step towards understanding how China's CBDC can function in cross-border payment scenarios and promote its internationalization.
How do central banks ensure their digital currencies don't replace existing financial systems?
Most central banks, including the PBOC, are adopting a two-tier system for their CBDCs. This model leverages the existing banking infrastructure, where commercial banks distribute the digital currency to the public. This approach minimizes disruption, manages financial disintermediation risks, and ensures compatibility with current monetary systems.